Exit Planning

Buy-Sell Agreements

The three types of buy-sell agreements are:

  • Entity Buy-Sell
    The business enters into a written agreement with the owners to purchase the interest of each owner in the event of disability, death, divorce or departure of a co-owner.
  • Cross-Purchase Buy-Sell Agreement
    Individual owners agree to purchase the interest of other owners. Each individual is the owner and beneficiary of a life insurance policy on each of the other owners, and the policy proceeds are used to pay the purchase price.
  • Partnership Administration Succession Strategy (PASS)
    Individual owners for a separate partnership and the partnership acquires life insurance policies on all the owner and administers the provisions of the buy-sell agreement. This approach has numerous tax and financial advantages compared to traditional stock redemption or cross-purchase agreements particularly in the case of C or S corporations with more than two owners.

PASS

Overview of this Concept

  • PASS (Partnership Administration Succession Strategy) is an effective and tax-efficient strategy for setting up a buy-sell agreement.
  • PASS involves the formation of a partnership/LLC between the individual business owners of a company.
  • It illustrates what happens when a business owner dies or leaves the company.
  • The concept highlights the benefits of life insurance and how it can be used with this strategy.
  • This concept shows the following values:
    • Composite values of all policies
    • Cash value allocations for all business owners
    • Summary of values for each individual policy